Correlation Between Edison Cobalt and Defense Metals

Can any of the company-specific risk be diversified away by investing in both Edison Cobalt and Defense Metals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Edison Cobalt and Defense Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Edison Cobalt Corp and Defense Metals Corp, you can compare the effects of market volatilities on Edison Cobalt and Defense Metals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Edison Cobalt with a short position of Defense Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison Cobalt and Defense Metals.

Diversification Opportunities for Edison Cobalt and Defense Metals

0.13

Correlation Coefficient

Edison Cobalt  Defense Metals

Average diversification

The 3 months correlation between Edison and Defense is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Edison Cobalt Corp and Defense Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense Metals Corp and Edison Cobalt is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Edison Cobalt Corp are associated (or correlated) with Defense Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense Metals Corp has no effect on the direction of Edison Cobalt i.e., Edison Cobalt and Defense Metals go up and down completely randomly.

Pair Corralation between Edison Cobalt and Defense Metals

Assuming the 90 days horizon Edison Cobalt Corp is expected to generate 0.85 times more return on investment than Defense Metals. However, Edison Cobalt Corp is 1.17 times less risky than Defense Metals. It trades about 0.11 of its potential returns per unit of risk. Defense Metals Corp is currently generating about 0.03 per unit of risk. If you would invest  5.11  in Edison Cobalt Corp on December 27, 2024 and sell it today you would earn a total of  1.89  from holding Edison Cobalt Corp or generate 36.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Edison Cobalt Corp  vs.  Defense Metals Corp

Edison Cobalt Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Edison Cobalt Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Edison Cobalt reported solid returns over the last few months and may actually be approaching a breakup point.

Defense Metals Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Defense Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edison Cobalt and Defense Metals

The main advantage of trading using opposite Edison Cobalt and Defense Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison Cobalt position performs unexpectedly, Defense Metals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Defense Metals will offset losses from the drop in Defense Metals' long position.

The idea behind Edison Cobalt Corp and Defense Metals Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.